Establishing Good Credit HistoryPosted on January 5, 2010

Bad credit can keep you from buying a home, financing your education, and even from getting a job. This is why it’s so important to build a good credit history.

Everything you do that involved credit becomes part of your credit history. You need to use credit responsibly to establish and maintain a good credit history. Buy how do you use credit responsibly?

1. Charge Only What You Can Afford to Pay
When you get into the habit of charging only what you can afford, it sends a signal to future lenders and creditors that you are a responsible borrower. You will find it easier to borrow money and get new credit when you show that you can pay back the money that you borrow. When you charge only what you can afford to pay back, it helps you avoid excessive debt.

2. Use Only a Small Amount of Your Available Credit
Maxing out your credit cards is one of the most irresponsible ways of using credit. Chances are that you won’t be able to pay off a maxed out credit card balance. Staying below 50% of your credit limit is wise, below 30% is best.

3. Start with Only One Credit Card
Many first-time credit card users accumulate a collection of credit cards within their first few years of using credit. This is not a good idea. The more credit you have, the more you’ll end up using. Learn how to be responsible with credit before you apply for additional credit cards.

4. Pay Your Balance in Full and On Time
If you’re only charging what you can afford to pay, this won’t be a problem. Paying off your balance each month shows that you’re capable of paying bills, something creditors and lenders want to see. Since a large part of your credit score includes timeliness of your payments, paying your balances on time improves your credit and is one of the easiest ways to maintain a good credit history.

5. Carry a Balance the Right Way
Having a credit card balance isn’t bad as long as you do it the right way. Make more than the minimum payment each month to pay off your balance as quickly as possible. Avoid making late credit card payments and continue to keep your balance at a reasonable level. If you follow these principles, carrying a balance won’t hurt your credit.